Tuesday, November 22, 2011

China's lending in context -- Time to pay the bill

Earlier this month I highlighted the continued deceleration in Chinese lending growth from it's peak in late 2009.  Just how massive their credit growth was unknown to me until this recent post and chart by Global Macro Monitor

The growth in lending right after the 2008/09 credit crisis is truly spectacular, even compared to other high growth Asian economies.  I'll snicker even more when I hear talking heads gush about how the Chinese mandarins were able to 'navigate' their way through the economic crisis and their ability to manage such a large economy.
They just called up the bankers and said LEND.
The bankers asked,  "How much?"
It was not some Chinese mastery of the economic cycle or superior technocratic skill; it was simply an ability to throw lots of money at the problem. Unfortunately for China the bill is now coming due.

Friday, November 18, 2011

Linkage roundup

Some reading material for you from my twitter stream:

Italian default scenarios by Credit Writedowns http://t.co/XZ1feKq5 -- The situation in Italy is getting worse. 
Doubline Emerging Markets Income Fund Presentation. Good emerging market review http://t.co/x5OicI8J
RT @BrazilFinance: m'fer... RT @zerohedge: Presenting Europe's Remaining 2011 Bond And Bill Auctions... All 104 Of Them http://t.co/jjJOxRPi
RT @thenewstribune: Crystal plans to open Friday, but #WhitePass and The Summit at #Snoqualmie in wait-and-see mode: http://t.co/bok5eeQz -- ski season opens early in the Pacific Northwest. Go global warming!
Social media decision tree http://t.co/tZ4nxDuZ
Interbank credit stress examples #2,346 and 47 http://t.co/Mz0UM73y http://t.co/uIGD6kVb -- Until these stop rising I'm not getting bullish.
Spain/Germany spreads at fresh highs http://t.co/Q8tuP3eB -- not good
RT @AlephBlog: Europes liquidity crisis http://t.co/deWTyNf8 The spread on senior unsecured bank debt measures EZone financial credit stress: high now $$
RT @EpicureanDeal: Spot on: "The hiring of Chelsea Clinton doesnt so much debase... TV news... as reveal its true value." http://t.co/rV9rTGB8
RT @niubi: A Desperate Apartment Seller In Beijing | Sinocism http://t.co/DuDojIWZ
RT @PragCapitalist: OECD: LEADING INDICATORS POINT TO SLOWING GLOBAL GROWTH: Just in case Europe didnt have you feeling uncertain e... http://t.co/V1yAL4Pu
Chinese ghost cities get really wierd: http://t.co/Q4B4UeS5
Now the WSJ gets bullish on munis: http://t.co/V4VX0xgR I've been bullish a while, still holding $MUB http://t.co/Z2xoDWcv
RT @creditplumber: Great little 18min TED video about lie spotting by Pamela Meyer. http://t.co/wbW1GT3w via @Ritholtz
RT @pdacosta: Big Obama donor got no-bid $433 mln contract to supply experimental drug for threat that may not exist http://t.co/qkGMXD6A h/t @AdamPSharp
RT @BergenCapital: $MSG - a lost NBA season is about 100mm of EBITDA off of $MSG (40% of FY 2012 EBITDA)
Skullcandy $SKUL keeps unloading inventory via Groupon. The latest: http://t.co/DNDCLhaE
Time lapse video of Earth from space station. Very beautiful! http://t.co/hrdDsA2m
RT @stlouisfed: New data available on FRED: Indexes on housing affordability from the National Association of Realtors http://t.co/z4APddru
RT @thetailchaser: USD 3m Libor fixings. It seems some institutions r getting squeezd out of the market. Takin other institutions w/ them http://t.co/WPzOVMDH
How much more can the ECB buy? http://t.co/z2m5L0R7
RT @ritholtz: Joke of the day: The Italian debt crisis is now being renamed Lehmancello $$
RT @izakaminska: Another brilliant blog from Lew Spellman http://t.co/bgmQdipu
How you fail is important and continually praising kids for 'being smart' can backfire. http://t.co/ycfOUekP
RT @PragCapitalist: IS THE CHINESE PROPERTY MARKET COLLAPSING?: Despite all the clamoring over a new recession, it looks like the U.... http://t.co/Rhl9Rmww
Motivation -> http://t.co/74a0c1yL

Thursday, November 17, 2011

Inflation expectations in the bond market

Here's an update on inflation expectations as expressed by the bond market.   As the nominal 10 year yield continues to drop it has pushed the TIPS real yield to nearly zero.  Some investors may grouse at the option of buying a security that guarantees a zero real return for the next 10 years and I agree with their sentiments. 

As to why this situation exists I would suggest it is a result of the Fed's desire to reflate the economy by numerous unconventional means (zero short rates, all the various flavors of QE)  

The spread between nominal and real yields has remains remarkably stable near the 2% mark with some noise on either side.   If we have another financial crisis, this time in Europe, I wonder if we'll see another drop in the implied breakeven rate....

Tuesday, November 8, 2011

Linkage roundup

Some reading material for you from my twitter stream:

http://t.co/vXWLZxuV - Italy near tipping point of increased margin requirements. I'm not the only one talking about this
RT @zerohedge: Hugh Hendry says he has made bets that will deliver a 40-to-1 return if the ECB cuts rates below 1% next year http://t.co/PAv4msUK
RT @edwardnh: The fact Greece's exit from euro has been discussed openly is seismic shift http://t.co/QVaWF7si
I'll get bullish when this stops going up. http://t.co/6vmUhc60
97% of family businesses don't make it past the 3rd generation http://t.co/MZAwrwRK
RT @FGoria: MT @M_McDonough: Italian CDS implying, country may be at risk of losing its investment grade status: http://t.co/mIVWCwkk
RT @mbusigin: Note that we did work on this in August, which gave us a different (bullish) signal: http://t.co/ivxLrhzB
RT @mbusigin: The few times realised volatility has eclipsed implied volatility, it presaged large declines: http://t.co/zTRw4ZDE
RT @edwardnh: Greece gets ultimatum: accept austerity plan or forgo extra bailout cash | Business | The Guardian http://t.co/DZSOBkDY -- Greece later backed down.
RT @edwardnh: France and Germany to withhold aid, Greece to be ejected http://t.co/WtNwsF6M #in $$ 
Greek referendum provides political cover http://t.co/MFDzDUCk
RT @PragCapitalist: THE GREEK REFERENDUM AND THE ROLE OF DEMOCRACY: I set off a bit of a firestorm on Twitter this afternoon when I ... http://t.co/O8GZFHvQ
New international bond etf's for Germany, Canada, and Australia $aud $cad $bund http://t.co/OemicVIk
Balestra Capitals Matthew Lucket Talks Gold, Deleveraging Story, and China Credit Problem http://t.co/9vGl387V @historysquared

Monday, November 7, 2011

China lending stats update -- The decline continues.

It has been over a year since I last highlighted the slow decline in official lending statistics out of China. Since then not much has happened regarding the direction of Chinese lending growth; a slow decline continues.

I point you to Steve Keen's debtwatch for why the rate of growth in lending is important.

The rate of lending growth peaked in October 2009 and has been declining ever since.  Compare this to the Chinese equity markets and you'll see how Chinese stocks haven't gone anywhere since October '09 either.

Unofficial lending is naturally harder to track but there are anecdotal signs of stress in this sector as well.    http://historysquared.com/ and http://www.alsosprachanalyst.com/ are two good sites to follow the 'underground' lending market.

Thursday, November 3, 2011

Hugh Hendry watch -- 5 part YouTube series from earlier this year

I find this episode of Hendry publicity a little different as he discusses his trading style and aspriations of what he wishes he could be as an investor. If you cannot watch the entire series I suggest you at least watch episodes 4 and 5. Realizing you don't know the future and how having too much knowledge can be detrimental really struck home with me.  If you study a company too much you can fall in love with the security, even as it goes down, down, down, and .... down.  Someday I may gather up enough courage to relate my failures in this category.

Thanks to Zerohedge

Tuesday, November 1, 2011

Mr. Bond (Market) is not impressed

Do I look impressed?
Even before the Greek referendum drama of the last 24 hours the bond market was not impressed with the latest Euro crisis 'solution'.

With Portugal, Ireland and Greece all tipping over the edge the next domino to watch is Italy.

Last week's news of a 50% 'voluntary' haircut for some Greek debt vaulted world equity and currency markets higher in a massive relief and short covering rally.  Mr. Bond market was not so impressed.

While both the absolute and relative yield of Italy's 10 year bond did fall a bit late last week on the news of the news of a new solution to the Greek debt situation announced Thursday morning by Friday afternoon Italian yields were creeping upwards again.
The German/Italian 10 year spread has blown out to new highs

Very close to breaking recent highs

The news of a Greek referendum on the latest round of negotiations shocked the markets and drove almost every risk asset downward with only the dollar and US Treasuries rallying. Italian yields are not looking good from a technical perspective and if they break 7% it could be the final domino to fall before the real euro crisis starts.  I'll be watching these metrics closely.

Linkage roundup

Some reading material for you from my twitter stream:

RT @edwardnh: Why the latest eurozone bail-out is destined to fail within weeks - Telegraph http://t.co/sgj8HQcn
RT @credittrader: GReader: The Global Moral Hazard Dawns: Merkel Says "It Must Be Prevented That Others Come Seeking A Haircut" As... http://t.co/Tjd22kbQ
RT @theanalyst_hk: $$ Jim Chanos: Not Impressed By The Europeans, And Still Shorting #China http://t.co/OvdXeWIr #economy #europe
RT @JackHBarnes: Chart of the Day: North Dakota Annual Oil Production: http://t.co/lUWOqWst -- need to do more research myself on shale oil
Transfer payments over time in US http://t.co/sxiw6sF8
RT @zerohedge: And Now, For Some Semblance Of Sanity, Here Is One Hour Of Hugh Hendry http://t.co/5A5Jwgxu -- separate post on this soon(tm)
CITI: Failure To Trigger Greek CDS Could Cause The Whole Euro Bailout To Fall Apart http://t.co/TLDjUF7L -- be careful what you wish for
Meanwhile in China a swan finally takes flight... http://t.co/Z8w40PKd -- Condo prices are falling hard.
RT @AlephBlog: Fannie Squeezing Banks Makes 4% Mortgage a Mirage, Hinders Housing Rebound http://t.co/BKikceRX Higher lending standards fight lower rates
RT @AlephBlog: Money managers and commodities, the case against http://t.co/ynsn1qT3 Graph shows $$ managers drove commodity prices http://t.co/eNKE3nFA
RT @andrewyorks: *EU LEADERS CALL FOR BANKS TO HAVE 9% CORE CAPITAL LEVEL ok move that dial on the upper left to 9 http://t.co/WHLMk6Dm -- should be interesting when taking haircuts on Greek debt.
Skyscraper taller than any in London or Tokyo opens in Chinese village of 2000. http://t.co/IvHoRw4j #thiswillnotendwell
Underground bank lending in China - NPR - http://t.co/677IPKYK
RT @historysquared: $$ The cash commodity trading firms that account for 1 trillion in annual revenue 50% of all transactions http://t.co/TqTvhHM1
RT @ftasia: Iron ore plummets to 15-month low: As Chinese steel mills cut production, the price of iron ore dropped 7.2 per ... http://t.co/RVfC48zy
Blackberry outage made roads safer. http://t.co/agSNxNGX